About

Expression – A derivative of the original:
"The excrement made physical contact with a hydro-electric powered oscillating air current distribution device".
Used primarily to describe a set of circumstances where events became inflamed to a point that control was lost.

The point at which "the shit hits the fan" is the point at which an already unstable situation devolves into utter chaos, often in spite of--or even due to--a higher authority's attempt to control it.
"But what happens if the cops try to suppress the protest?"
"Well, then, the shit hits the fan."
"A full-scale riot?"
"Exactly."

(When there is shit that stinks…thas bad. When shit hits a running fan, flings it all over the place, and spreads the wafting stank…thats WORSE!).

Origin

The earliest citation of it that I can find is in the 1967 edition of Eric Partridge's A dictionary of slang and unconventional English:

"Wait till the major hears that! Then the shit'll hit the fan!"

the real origin…

Usage/Variation

It is mostly used as followed:
*Shit has hit the Fan
*Shit will hit the Fan
*When (the) Shit hits the Fan
*Let the Shit hit the Fan

In the media:
Obie ft. Dre and Eminem – Shit Hits the Fan

The Circle Jerks – When the Shit hits the fan (album)